Life Insurance - Outweighing The Benefits?
When it comes to retirement planning or life insurance, do you know what the risks are for you? With many plans and services available in today’s market, it is important to weigh the benefits so as not to make a costly mistake.
The post provides an overview of the average cost of life insurance with various term lengths and coverage amounts. It also discusses how time value-of-money calculations can help when deciding between policies with different rates. Lastly, it suggests ways that people can make their own lifestyle changes in order to decrease insurance costs while improving their quality of life.
Life Insurance Benefits
The benefits of life insurance have made the policy a popular option for many families, but some experts believe that these benefits are not always clearly understood. To help ensure that the policy works to achieve clients’ goals, advisors should make a clear distinction between life insurance as an investment and as an insurance product.
For an investment, the basic purpose of insurance is to make payments – in this case, death benefits – upon certain triggers. This is known as “deferred annuities” and is a common financial advisor tool for providing guaranteed income at a certain age or upon a specified event.
In contrast, life insurance as an insurance product is designed to provide protection against the financial loss that may be caused by a family member’s death. Therefore, life insurance is considered to be an investment in that it offers people protection in the event of their death. However, this does not replace the person who dies; rather, it replaces his or her heirs. The earlier in life a person purchases a policy, the higher initial premium will be and for the longest period of time. This is because the longer you have to cover your expenses after you die, the less money you will need to pay out as a benefit. Therefore, if you buy a policy when you are young (i.e. 35 years old) it will be more expensive than one bought at, say, 45 years old.
Life insurance has been shown to significantly improve families’ financial situation after a loved one dies, but not all policies are efficient or the best choice. In fact, the average cost of life insurance with various term lengths and coverage amounts can vary by as much as 40%. Therefore, when deciding between policies with different rates it is important to consider both the costs and benefits of each option. However, doing so can be difficult because people do not typically consume life insurance products – instead they choose their own lifestyle and end up borrowing against their future cash flows. Instead of finding policies that are designed to maximize one’s cash flow, people often opt for the best deals, which may not provide enough coverage or save enough money.
In order to improve their finances after death, people should consider the advantages and disadvantages of purchasing life insurance, including:
Advantages
Easier to Plan for: Many people do not plan for their own death until it is too late. However, a life insurance policy can be purchased while a person is still in good health and can plan accordingly. This planning can benefit not only the owner but also his or her family members.
Tax Shelter: In today’s economy, people are focused on saving for retirement. They do not want to give up this saving and will often try to obtain tax deductions for their contributions. However, life insurance can be the “free lunch” that allows people to take advantage of tax deductions without sacrificing any benefits they would have received from retirement savings.
Disaster Insurance: Although all insurance is not a disaster insurance, some policies may provide coverage if the policy owner is wiped out financially through an event such as a fire or a car accident.
Lifestyle Changes: Many people make lifestyle changes in order to decrease their costs and increase their quality of life. However, the cost of life insurance is relatively fixed and does not change along with a person’s lifestyle. Therefore, if a person decides to make changes that reduce his or her insurance needs he or she will either have to remain underinsured or increase their premium payments. However, it is possible to make these changes without increasing costs. For example, life expectancy has increased by 2.4 years for every decade over the past century and people are living longer in general. People may also be able to lower their policy costs by decreasing certain lifestyle factors such as cigarette smoking or consuming alcohol excessively.
Disadvantages
Cost: The average cost of life insurance is more than $700 for a 12-year term and a $500,000 death benefit. Therefore, the cost of life insurance can be quite expensive. However, this amount could be significantly reduced if people keep their costs low and take advantage of tax deductions and available discounts.
Inadequate Coverage or Savings: When purchasing a policy, it is important to make sure that the coverage provided matches one’s financial situation and that the premium has been calculated correctly. If either of these aspects are not correct then an individual may have inadequate coverage or save less money than he or she expected. For this reason, people should make sure to examine the policy carefully before purchasing it and ask any questions that they may have about it.
Additional Expenses: Some people may find that they are forced to spend additional money in order to take care of the funeral expenses for a family member who died. However, most life insurance policies do not cover this loss from income taxes and the cost of registration fees can be quite expensive. Therefore, it is important that people choose policies with enough coverage to cover the expenses that will arise from the person’s death.
The Financial Planning Process: Life insurance has a financial planning process – but it is quite different from other types of insurance. Therefore, if a person does not have any experience with it, he or she may not be able to make the best financial decisions on how to cover the costs of their loved one’s death. This could result in an individual making poor decisions which can result in higher expenses or even bankruptcy. It is important that people learn about the life insurance process and take advantage of any support provided by family members and or personal advisors before they invest in such a product as well as throughout their lifetime.
However, this is not to say that life insurance should be avoided altogether. In fact, many people have found that life insurance can be an effective way to ensure their family’s financial security after suffering a tragic event such as a car accident or a fire. The key is to make sure that the coverage provided matches the individual’s needs and that they are covered by an effective policy which will allow them to obtain death benefits while simultaneously saving for retirement.
Contact us for more information or are to call 865.403.0011 to speak with one of our experts on life insurance policies, term insurance quotes or any other personal finance issues you may have concerning your investments and retirement planning needs...
Conclusion
Life insurance is a critical part of any well-planned retirement plan. However, people must be aware of the fact that it lacks some of the advantages they are accustomed to with other products like retirement savings plans. This is because life insurance does not have guaranteed returns over time and will typically cost more than a person expects. Therefore, it is important to examine the policy carefully before purchasing it and ask as many questions as necessary. It may also be wise for people to get advice from family members or friends who may already have experience with life insurance policies in order to find out what their options are and how they can save money on this type of product.